5 Quantitative Risk Analysis Free Online FlashCards

What does quantitative risk analysis assess?

Quantitative risk analysis uses numerical estimates to assess how uncertainty may affect project cost, schedule, and performance, helping teams compare alternatives and focus responses.

How is expected monetary value calculated?

Expected monetary value is the sum of each outcome’s probability multiplied by its monetary value: $\text{EMV} = \sum_{i=1}^{n} p_i x_i$.

What does an EMV represent—and what does it not predict?

EMV is a probability-weighted average across possible outcomes, not a prediction of what will happen in a particular case.

How should threats and opportunities be represented in EMV?

Record threat impacts as losses and opportunity impacts as gains when calculating EMV.

What should exhaustive outcome probabilities sum to?

If the outcomes are exhaustive, their probabilities should sum to $1$.

When is it appropriate to add several risk EMVs?

Add EMVs only when estimates share a consistent scope and time frame. Dependencies between risks can make a simple sum misleading.

What do the three main parts of a decision tree represent?

A decision node marks a choice, a chance node marks uncertain outcomes and their probabilities, and terminal branches show resulting payoffs or costs.

How do you evaluate a decision tree?

Calculate EMV at each chance node, then work backward toward the decision node and choose the alternative with the best expected result.

Which supplier has the lower expected cost in the example?

The more reliable supplier has the lower expected cost: $\$112{,}000 + (0.05 \times \$50{,}000) = \$114{,}500$, which is $\$500$ below the standard supplier’s $\$115{,}000$.

How does sensitivity analysis test a project estimate?

Sensitivity analysis varies one input at a time while holding other assumptions constant, then compares how the estimate or decision changes.

What does a tornado chart show in sensitivity analysis?

A tornado chart ranks factors according to how much each one changes the result.

What is the standard supplier’s expected cost if delay probability rises to $40\%$?

At a delay probability of $40\%$, the standard supplier’s expected cost is $\$100{,}000 + (0.40 \times \$50{,}000) = \$120{,}000$.